| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥524.3B | ¥500.3B | +4.8% |
| Operating Income / Operating Profit | ¥52.9B | ¥61.2B | -13.5% |
| Ordinary Income | ¥55.3B | ¥61.7B | -10.3% |
| Net Income / Net Profit | ¥35.9B | ¥35.4B | +1.3% |
| ROE | 9.5% | 10.0% | - |
For the fiscal year ended March 2026, Revenue was ¥524.3B (YoY +¥24.0B, +4.8%), Operating Income was ¥52.9B (YoY ▲¥8.3B, ▲13.5%), Ordinary Income was ¥55.3B (YoY ▲¥6.4B, ▲10.3%), and Net Income was ¥35.9B (YoY +¥0.5B, +1.3%). Despite revenue growth, SG&A increased by ¥10.8B YoY, causing the operating margin to decline to 10.1% (prior year 12.2%), resulting in revenue up / profit down. Net Income rose slightly due to higher non-operating income and reduced extraordinary losses. By segment, DVSolution led with Operating Income up +13.2% (double-digit increase), while EPSolution declined ▲25.6% and ServiceSolution declined ▲35.9%, reflecting worsening profitability in two core businesses. ROE remained in a favorable range at 9.5%, but a deterioration in gross margin to 20.5% (prior year 21.0%) and an increase in SG&A ratio to 10.4% (prior year 8.8%) compressed profitability. Operating Cash Flow was ¥27.9B, 0.78x Net Income, revealing weak cash conversion.
[Revenue] Revenue increased across all segments to ¥524.3B (YoY +4.8%). Segment composition: EPSolution 31.2% (¥163.5B, +4.9%), ServiceSolution 29.0% (¥152.2B, +6.0%), EB 21.5% (¥112.5B, +1.6%), DVSolution 18.3% (¥96.1B, +6.8%). EPSolution saw double-digit growth in Financial & Public Solutions at ¥82.9B (+13.9%), offsetting declines in system hardware sales. ServiceSolution’s Cloud & Infrastructure Services was only slightly up to ¥102.3B, while Digital Solutions grew to ¥49.9B (+12.7%). DVSolution grew +6.8% driven by expansion of device development projects, and EB rose +1.6% on steady embedded development orders. Sales to major customer NEC Group increased to ¥57.7B (11.0% of total) from ¥55.7B, indicating deeper customer penetration.
[Profitability] Cost of sales increased to ¥416.7B (prior year ¥395.2B), up +5.4%, lowering gross margin to 20.5% (prior year 21.0%), down 0.5pt. SG&A increased to ¥54.7B (prior year ¥43.9B), up +24.6%; significant increases include advertising expenses to ¥9.0B (prior year ¥1.3B), rent ¥3.6B (prior year ¥2.0B), and executive compensation ¥2.3B (prior year ¥1.9B). As a result, Operating Income was ¥52.9B (▲13.5%) and Operating Margin deteriorated 2.1pt to 10.1% (prior year 12.2%). Non-operating income was ¥2.5B, with interest income up to ¥0.7B (prior year ¥0.3B); non-operating expenses were negligible at ¥0.0B, resulting in Ordinary Income of ¥55.3B (▲10.3%). Extraordinary losses were ¥2.3B (prior year ¥7.4B), including an impairment on available-for-sale securities of ¥7.3B, the same-level as prior year; Profit Before Tax was ¥53.0B (▲2.3%), and Net Income came in at ¥35.9B (+1.3%). In conclusion, the result was revenue growth with profit decline.
EPSolution: Revenue ¥163.5B (+4.9%), Operating Income ¥17.0B (▲25.6%), margin down to 10.4% (prior year 14.6%), a 4.2pt decline. Expansion in Financial & Public Solutions drove revenue, but higher SG&A and margin deterioration on projects compressed profit. ServiceSolution: Revenue ¥152.2B (+6.0%), Operating Income ¥5.3B (▲35.9%), margin fell to 3.5% (prior year 5.5%), a 2.0pt deterioration. Slower growth in Cloud & Infrastructure Services and upfront investment burden significantly reduced profitability. EB: Revenue ¥112.5B (+1.6%), Operating Income ¥16.1B (▲6.6%), margin 14.3% (prior year 15.5%), down 1.2pt; robust order intake offset by higher personnel and subcontracting costs. DVSolution: Revenue ¥96.1B (+6.8%), Operating Income ¥14.5B (+13.2%), margin improved to 15.1% (prior year 13.5%), up 1.6pt, the only segment with both profit growth and margin improvement, driven by higher-margin device development projects and efficient project execution.
[Profitability] Operating Margin 10.1% declined 2.1pt from 12.2%, driven by lower gross margin 20.5% (prior year 21.0%) and higher SG&A ratio 10.4% (prior year 8.8%). ROE 9.5% decreased from 10.7% but remains at a healthy level. Net Profit Margin 6.8% (prior year 7.1%), Total Asset Turnover 1.06x (prior year 1.06x), Financial Leverage 1.30x (prior year 1.33x). [Cash Quality] Operating Cash Flow (OCF) was ¥27.9B, 0.78x Net Income (¥35.9B); increases in Accounts Receivable ▲¥9.0B, slight increase in inventories, and corporate tax payments ▲¥19.7B were cash outflow drivers. Subtracting working capital change ▲¥21.4B from Operating CF subtotal ¥49.3B highlights weak OCF generation. Days Sales Outstanding approximately 105 days (Accounts Receivable ¥151.1B ÷ Revenue ¥524.3B × 365), prolonged, with high WIP indicating the need to improve working capital efficiency. [Investment Efficiency] Total assets ¥492.9B (prior year ¥471.5B), Revenue growth +4.8%; capital expenditure ¥3.6B (depreciation ¥4.7B) conservative; available-for-sale securities doubled to ¥20.0B (prior year ¥10.0B) to strengthen surplus cash management. [Financial Soundness] Equity Ratio 76.9% (prior year 75.1%), Current Ratio 455%, Quick Ratio 444%—extremely healthy. Cash and deposits ¥196.5B are 2.4x current liabilities ¥83.3B. Interest-bearing debt effectively zero, Debt-to-Equity 0.30x. Retirement benefit obligations ¥26.9B are accumulated but manageable with financial capacity.
Operating CF was ¥27.9B (prior year ¥38.5B, ▲27.6%), below Net Income ¥35.9B, showing weak cash conversion. Operating CF subtotal ¥49.3B was materially impacted by working capital change ▲¥21.4B (Accounts Receivable increase ▲¥9.0B, advances received decrease ▲¥2.6B, trade payables increase +¥5.1B), and corporate tax payments ▲¥19.7B also contributed to outflows. DSO of ~105 days and high WIP are tying up working capital; accelerating inspection acceptance and compressing WIP are urgent. Investing CF was ▲¥16.2B, including acquisition of available-for-sale securities ▲¥10.0B, capital expenditures ▲¥3.6B, and intangible asset investments ▲¥0.9B. Free Cash Flow fell to ¥11.7B (prior year ¥44.9B), insufficient to cover dividend payments of ¥12.7B—payout exceeded internally generated funds. Financing CF was ▲¥12.9B, mainly dividend payments ▲¥12.7B. Ending cash was ¥195.5B, ample, and short-term liquidity concerns are limited, but without OCF improvement sustained growth investment and shareholder returns will be difficult.
Ordinary Income ¥55.3B exceeded Operating Income ¥52.9B due to non-operating income of ¥2.5B (interest income ¥0.7B, insurance dividend ¥0.1B). Non-operating expenses were negligible at ¥0.0B and interest burden is almost zero, reflecting an effectively debt-free profile. The ¥2.3B decline from Ordinary Income ¥55.3B to Profit Before Tax ¥53.0B is due to extraordinary losses (impairment on available-for-sale securities ¥7.3B, loss on disposal of fixed assets ¥0.1B), but the prior year also recorded similar extraordinary losses of ¥7.4B, indicating normalization of one-off items. Comprehensive Income ¥37.4B exceeded Net Income ¥35.9B; changes in valuation difference on available-for-sale securities ▲¥0.2B and actuarial gains on retirement benefits +¥0.3B are minor, so earnings quality is assessable on an ordinary profit/loss basis. Operating CF ¥27.9B below Net Income ¥35.9B is attributable to expansion of working capital; accruals (profit vs. CF) have deteriorated. Prolonged receivables and slower increase in trade payables are primary causes; revenue recognition conservatism appears intact, but accelerating cash conversion is key to improving earnings quality.
Full year guidance: Revenue ¥540.0B (YoY +3.0%), Operating Income ¥54.0B (+2.1%), Ordinary Income ¥54.5B (▲1.5%), Net Income ¥37.5B (+4.5%), EPS ¥251.69. Progress against plan: Revenue 97.1%, Operating Income 98.0%, Ordinary Income 101.5%, Net Income 95.7%, indicating results broadly in line with plan. Next fiscal year assumes Revenue growth +3.0%, down from this year’s +4.8%, but Operating Income +2.1%, implying margins stabilize. Operating Margin is expected at 10.0% (¥54.0B ÷ ¥540.0B), roughly this year’s 10.1%, assuming SG&A growth is contained and absorbed by revenue growth. Ordinary Income is projected to decrease slightly by ▲1.5%, possibly reflecting normalization of non-operating income and changes in investment environment. Dividend forecast is ¥60 (payout ratio ~24%), a sharp decline from this year’s ¥125; this year’s ¥125 likely included a special dividend, and next year’s ¥60 is viewed as a return to normalized dividend level.
Dividend is ¥125 per share (interim ¥40, year-end ¥85), maintained at prior year level; payout ratio was 50.2% (total dividends ¥12.7B ÷ Net Income ¥35.9B × 14.9 million shares). Total dividends ¥12.7B exceeded Free Cash Flow ¥11.7B, so payout exceeded internally generated funds, but was executed given ample cash and deposits of ¥196.5B. Next year’s dividend forecast is ¥60 (payout ratio ~24% on EPS forecast ¥251.69), suggesting a cut from ¥125 and interpreted as normalization after special dividend. No share buybacks have been executed; shareholder returns are concentrated in dividends. Dividend sustainability depends on OCF improvement and stabilization of Operating Margin, with working capital efficiency improvements (shorter receivables DSO, WIP compression) as prerequisites. Given current financial capacity, short- to medium-term risk of further dividend cuts is limited, but without recovery in FCF generation sustained dividend increases are difficult; a payout ratio around 30% is recommended for disciplined balance.
ServiceSolution profitability deterioration risk: Operating Margin fell to 3.5% (prior year 5.5%), a 2.0pt decline, now the lowest among segments. Slower growth in Cloud & Infrastructure Services and upfront investment burdens are primary causes; with Revenue ¥152.2B and Operating Income ¥5.3B, a thin-margin structure is evident. This segment represents 29.0% of company Revenue, so delayed profitability recovery would weigh on consolidated margins.
Working capital efficiency deterioration risk: DSO ~105 days, Operating CF / Net Income 0.78x, indicating weakened cash conversion. Accounts Receivable ¥151.1B increased ¥8.9B from prior year ¥142.2B, and WIP has expanded. Delays in acceptance or more long-lead projects are suspected; without normalization of working capital, FCF generation will be depressed, hampering the balance between growth investment and shareholder returns.
SG&A rapid increase causing operating leverage deterioration risk: SG&A ¥54.7B rose +24.6% from prior year ¥43.9B, far outpacing Revenue growth +4.8%. Increase in advertising expenses to ¥9.0B (prior year ¥1.3B) appears to be recruitment and brand investment, but time lag to realize benefits suppressed Operating Margin by 2.1pt. If cost effectiveness falls short of expectations, prolonged margin weakness could lead to sustained ROE declines.
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 10.1% | 8.1% (3.6%–16.0%) | +2.0pt |
| Net Profit Margin | 6.8% | 5.8% (1.2%–11.6%) | +1.0pt |
Operating Margin 10.1% is 2.0pt above the industry median 8.1%, and Net Profit Margin 6.8% is 1.0pt above the median 5.8%, indicating relatively favorable profitability within the sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 4.8% | 10.1% (1.7%–20.2%) | -5.3pt |
Revenue Growth 4.8% is 5.3pt below the industry median 10.1%, indicating comparatively slower growth.
※ Source: Company compilation
Structural transition to revenue up / profit down: Despite Revenue growth of +4.8%, Operating Income fell ▲13.5% and Operating Margin declined to 10.1% (prior year 12.2%), a 2.1pt deterioration. SG&A increased +24.6% YoY—driven by advertising expenses, rent, and executive compensation. The timing for realizing returns on upfront investments and controlling SG&A to restore operating leverage are key near-term focuses. Only DVSolution achieved profit growth and margin improvement; recovery in EPSolution and ServiceSolution profitability is critical for consolidated performance.
Urgent need to improve working capital efficiency: Operating CF ¥27.9B is only 0.78x Net Income ¥35.9B; prolonged DSO ~105 days and high WIP are tying up funds. Free Cash Flow ¥11.7B was below dividends ¥12.7B, meaning payout exceeded internally generated funds. From next fiscal year, accelerating receivables collection, shortening acceptance cycles, and compressing WIP to improve OCF will determine sustainability of growth investment and shareholder returns. Ample cash balances ¥196.5B support short-term liquidity, but long-term growth requires normalization of cash generation.
Slight profit improvement plan next year, dividend returning to normalized level: Full-year guidance Revenue ¥540.0B (+3.0%), Operating Income ¥54.0B (+2.1%), expecting margin stabilization; dividend ¥60 (assumed payout ratio ~24%) indicates normalization from this year’s ¥125. Financial soundness is very high (Equity Ratio 76.9%, Current Ratio 455%), providing investment capacity, but achievement of next year’s targets depends on controlling SG&A and optimizing working capital.
This report is an earnings analysis document automatically generated by AI analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmarks are reference information compiled by the firm based on public financial statements. Investment decisions are your responsibility; please consult professionals as necessary before making any investment decisions.